Diesel demand elasticities and sustainable development pillars of economy, environment and social (health): comparing two strategies of subsidy removal and energy efficiency

摘要

Abstract For reducing fossil fuel demand and its environmental damages in Iran, the UN suggests removal of fossil fuel subsidies in this developing country which has the largest amount of energy subsidies in the world within 2010s. This research investigates the effectiveness of subsidy removal as a price policy in reducing the consumption of diesel which has the highest share in the total fossil fuel demand portfolio. The novelty of this research is that it compares the effects of price policy and energy efficiency on reducing diesel demand and improving sustainability to reveal which one is a more effective policy. To this aim, our study employs dynamic model, static model and error-correction model for estimating the diesel demand elasticities during 1976–2017. The results show that the diesel demand responds to changes in energy efficiency substantially, while it responds to changes in price slightly. Based on our findings, energy efficiency is about 30 times more effective than the price policy on reduction of diesel demand and improvement of the sustainable development pillars including economy, environment and social (health). A 10% improvement in energy efficiency at the first year of the studied period could reduce more than 87 billion liters of diesel consumption, 3 billion tons of CO2 emissions and 65 thousand deaths from the air pollution during the period. Therefore, the strategists should improve the technology especially the efficiency of energy-consuming utilities like cars, rather than increasing the price and removal of subsidy, to reduce diesel demand and improve sustainability.